Statement of Advice 1 Prepare a tax return for an entity (Australian private company)

In your current role, you are responsible for providing taxation services to individual/business clients. You conducted an initial meeting with two (2) clients (Cynthia and Andreas Rafter, both Australian residents) to obtain and document all the relevant information which is required to prepare the relevant tax documentation.

Both Andreas and Cynthia are directors of Border Pty Ltd, an Australian resident private company with a corporate tax rate for imputation purposes of 30% for the 2020/21 income year. The clients have requested that you evaluate their tax position and provide recommendations relating to income tax liability and the optimum tax treatment.

Border Pty Ltd sells coffee machines using accrual basis accounting for tax purposes. Receipts and payment details as at 30 June 2021 are as follows (ignore GST and small business concessions).

Receipts Cash received for Sales (note 1) $278,000

Dividend received (note 2) $8,720

Payments Purchases of inventory (note 3) $97,000

Net wages paid to employees $57,890

PAYG withholding paid to the ATO $12,780

Superannuation paid (note 4) $4,987

PAYG instalment paid the ATO (note 5) $5,210

Fringe benefit tax paid to the ATO $11,210

Fully franked Dividend paid (note 6) $30,000

Purchase of motor vehicle (note 7) $52,000

Other deductible expenses $26,900

Notes

Note 1) All sales during 2021 income year were on credit. Account receivable balances were as follows.

Date 1 July 2020 30 June 2021 Accounts receivable $17,600 $19,800

Note 2) Dividend income received by Border Pty Ltd for the year included:

On 30/8/2020, a dividend of $3,600 received from Australian Bank Ltd (an Australian resident public company for tax purposes) franked to 60%.

On 28/2/2021, an unfranked dividend of $5,120 from Lowest Ltd (an Australian resident public company for tax purposes).

Note 3) All inventory purchases during 2021 tax year were on credit. Account payable and inventory balances were as follows.

Date 1 July 2020/ 30 June 2021

Accounts payable $5,280/ $5,830

Inventory (trading stock) on 1 July 2020 $7,100

Inventory (trading stock) on 30 June 2021

- at cost $8,400

- at market selling $8,600

- at replacement $8,500

Page 3 Kaplan Business School Assessment Outline

Note 4) As per the ledger balances on 30 June 2021, Superannuation payable for June quarter was amounted to $1,727. The payment is due by 28 July 2021.

Note 5) As per the ledger balances on 30 June 2021, PAYG instalment liabilities payment and payable information are as follows.

24/8/2020 PAYG instalment paid for June quarter 2020 $ 860

25/11/2020 PAYG instalment paid for September quarter 2020 $1,450

28/2/2021 PAYG instalment paid for December quarter 2020 $1,450

26/5/2021 PAYG instalment paid for March quarter 2021 $1,450 June quarter 2021 was amounted to $1,450.

The payment will be paid on 25 August 2021. Note 6) The fully franked dividend was paid on 25 February 2021.

Note 7) The motor vehicle was purchased on 1 March 2021 and used to deliver coffee machines. Andreas wishes to use the taxation effective life to depreciate the machine.

Required

1) Andreas wishes to minimise the income tax for 2020/21. Calculate Border Pty Ltds net tax liability in respect of the income that it derived in the tax year 2020-2021.

2) Advise assessability of receipts and deductibility of payments with explanations (Sales, Dividend income, Trading Stock, PAYG withholding, PAYG instalment, Superannuation guarantee, fringe benefit tax, Dividend paid and motor vehicle purchase). Include section numbers and/or cases in your explanations.